UK economy: the good, the bad and the ugly
Last week we got three important updates on the state of the UK economy: labour market figures, inflation numbers and the latest retail sales. They can be summarised as the arguably good, the bad and the ugly.
The headline jobs figure was certainly encouraging but digging into the data there are causes for concern, as noted by the FT’s Alphaville blog.
- The number of people working part time because they have been unable to find full-time work increased to 1.21 million, the highest since at least 1992.
- The claimant count measure of unemployment rose for a third month.
- The fall in unemployment amongst 18-24 year olds may have been driven by a large number of these people becoming economically inactive – i.e. leaving the labour force.
As one city forecaster wrote, the worst may be yet to come:
“The labour market is currently showing resilience in the face of a struggling economy, but the key question is can it last? We have serious doubts about this and suspect that unemployment will head up in the second half of the year as public sector jobs are increasingly pared and private sector companies become more cautious in the face of persistently sluggish growth. We think unemployment on the ILO measure could very well reach 2.6 million in 2012, taking the unemployment rate up to 8.3%”
If the unemployment numbers were debatable, the inflation numbers were clearer cut. Inflation remains at a two-and-a-half year high and well in excess of wages growth. Indeed real wages (average earnings growth minus retail price inflation) have now fallen for 17 consecutive months. In other words people in work, on average, have been seeing the value of their wages fall since the end of 2009.
Given the squeeze in wages the, ugly retail sales number comes as no surprise.
This was reinforced by Sainsbury CEO Justin King, who described the retail environment as ‘tough’ and noted that ‘higher fuel costs and the government’s austerity measures were eating into household budgets, forcing many customers to trade down to Sainsbury’s cheaper, own-label “Basics” range’.
As the Chief Economist of the British Chambers of Commerce said last week:
"On the basis of these figures we reiterate our forecast that GDP (gross domestic product) is likely to grow by only 0.3% in the second quarter of 2011, much less than the OBR [Office for Budget Responsibility] and other analysts are predicting,"
If he is right then the UK economy will have grown by only 0.3% in nine months – a near disastrous performance.
Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.
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